The S&P 500 index is, without a doubt, the most closely watched stock market barometer on the planet. It contains some 500 large and profitable businesses listed on U.S. stock exchanges. Combined, they represent about 80% of the entire stock market capitalization.
Investors who want exposure to the index don't need to look far to find a compelling exchange-traded fund (ETF) to add to their portfolio. In fact, there's one that deserves some attention. Here's why the Vanguard S&P 500 ETF (VOO 0.51%) is a no-brainer buy for someone who might have less than $1,000 of money to put to work in the stock market.
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Instant diversification for your portfolio
As mentioned, this ETF contains 500 stocks, so investors gain exposure to all sectors of the economy -- from information technology and financials to materials and real estate. This means there is a diverse range of businesses and industries included in the portfolio.
At the end of the day, this ETF can be viewed as a bet on the ongoing ingenuity of the American economy and some of the hottest trends -- and this includes artificial intelligence (AI). Some of the ETF's top positions are in companies like Apple, Microsoft, and Nvidia, all of which are focused on AI-related initiatives to fortify their competitive positions.
The ETF's sponsor, Vanguard, is one of the most highly regarded asset management firms in the industry. It's been around since 1975. As of the end of last year, it had eclipsed $10 trillion in assets under management, which goes to show you the amount of trust that so many investors (and so much capital) have in the business.
The numbers are hard to ignore
Warren Buffett, who has an unbelievable track record handling capital allocation and running Berkshire Hathaway, suggests that a low-cost ETF like the Vanguard S&P 500 ETF is the best investment option for most people out there. It's hard to beat an expense ratio of just 0.03%.
That's pennies compared to the exorbitant fees you see active fund managers charge. A typical hedge fund charges its clients both a management fee and a performance fee. This can significantly eat away at returns over time. Even so, a good chunk of these so-called experts struggles to outperform the S&P 500 over long stretches of time.
Because the S&P 500 has put up better returns than its historical average of 10% per year, it's no wonder the professionals are having a hard time. Just in the past decade, the Vanguard S&P 500 ETF has generated a total return of 232%, which would've turned a $1,000 initial investment into $3,300 today.
It's all about mindset
Even though the Vanguard S&P 500 ETF has produced such a great return, it doesn't necessarily mean that investors have achieved that same performance in their own portfolios. It's easy to fall victim to our emotions, with the goal of successfully trying to time the market, forcing us to trade too frequently, resulting in more damage being done.
This is why it's critical to fixate on the next decade and beyond with your investments instead of the next month or year. The stock market rewards those who are patient and disciplined, even in the face of extreme bouts of volatility, like what we experienced earlier in 2025.
It's impossible to say whether or not the Vanguard S&P 500 ETF will repeat its past decade's performance between now and 2035. However, I'm sure that long-term investors will end up with a very favorable result.
